In “Healthcare Innovations in Georgia:Two Recommendations”, the report prepared by the Anderson Economic Group and Wilson Partners (AEG/WP) for the Georgia Public Policy Foundation, the authors clearly explained their computations and made clear the assumptions underlying their report. The report’s authors put a great deal or energy into demonstrating that billion dollar savings could be derived from direct primary care under certain assumptions. After what I believe was careful examination, I concluded that those assumptions were unsupportable.
Here, I summarize my opinions, linking to about twenty individual posts. The posts themselves contain numerous supporting citations and data, as well as access to spreadsheets that can be used as templates for the reader’s own calculations.
AEG/WP made two questionable assumptions about direct primary care fees. One assumption was that appropriate direct primary care would have a fixed monthly fee of $70. My analysis shows that $70 lowballs the fee considerably. A second assumption was that monthly direct primary care fee would remain flat for a decade.; I noted that these fees were likely to track medical cost inflation. I recomputed the possible savings based on using a more accurate monthy fee and the same medical cost inflation number AEG/WP used. And I left in place AEG/WP’s assumption, discussed below, that direct primary cuts 15% off downstream care costs. Correcting only AEG/WPs two assumptions about $70 fees caused the billion dollar purported savings to fall by 85%.
The most central assumption in the AEG/WP analysis is that direct primary care reduces the cost of downstream health insurance by 15%. Direct primary care needs to show significant reduction in downstream care costs to justify the fact that even $70 direct primary care monthly fees would exceed expected fee-for-service primary care payments — by about $350 per year in the individual market. While the AEG/WP’s 15% assumption corresponds to a downstream care cost savings in the vicinity of $660 per year, there is no clear evidence to show that direct primary care can even cover its own $350 annual upcharge,
I noted that AEG/WP supported its 15% assumption only by referring to undisclosed research internal to its own team. I noted that the marketplace had already demonstrated skepticism about similar claims. I noted that a DPC practice founded by one of the authors of the AEG/WP reports authors had made similar claims, without producing supporting data. I further noted that selection bias had infected the best documented argument that direct primary care reduced downstream costs.
I contacted AEG/WP and learned the 15% assumption was based on three reports, available on the internet, about different DPC clinics. I was able, therefore, to carefully examine the information available to AEG/WP. In a single post, I addressed the experience of two clinics, which together were both the two largest and the two most current examples used by AEG/WP; I concluded that these both examples failed to address selection bias adequately.
The third example, the Nextera clinic, deserved its own posts. Their report noted obvious selection bias, while revealing modest evidence that Nextera cuts cost for some of its patients. But the data set was skimpy and contaminated by results for fee for service patients. The patient data that showed downstream cost reductions for patients served by Nextera included both significant numbers who paid only Nextera’s fixed monthly fee and significant numbers who paid Nextera only on a per visit basis. This may be an adequate method for measuring the positive value of Nextera. It is hardly sufficient as a yardstick for the positive downstream value of fixed-fee direct primary care. In a separate post, I noted that Nextera’s experience showed only a $72 PMPM overall claims cost reduction, an amount that would barely exceed the $70 monthly fee.
I pointed out that even if the foregoing criticisms of the source data on which the AEG/WP relied were in error, their further assertion that the 15% assumption is a conservative one is incorrect.
I also pointed out that AEG/WP’s source material for the 15% assumption consisted only of marketing information, and I suggested that a few brags from a few DPC companies is not a sound basis for public policy decisions.
I spoke with the actuary who was on the AEG/WP team; he made clear that his role did not include validating the 15% assumption.
I noted that the AEG/WP sourced low monthly fees to a set of direct primary care providers who had sharply lower fees than the providers to whom AEG/WP sourced its claim of downstream cost reduction. I suggested that an analyst seeking to establish cost-effectiveness would be well-advised to draw both cost data and effectiveness data from the same sources.
Not a penny of the savings in the AEG/WP report can be achieved unless direct primary care will significantly reduce downstream care costs. There is no sound evidence in the sources on which the AEG/WP authors relied that direct primary care can even manage to cover its own added cost, even if direct primary care were priced at $70 and would stay at the level for a decade.
May 2020: An important study by actuaries at Milliman now suggest that 15% downstream care cost reductions are credible, affect our previous take on the AEG/WP report.
Here’s a chronological list of posts relating to AEG/WP’s “Healthcare Innovations”.